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income is determined to be includible in your gross
income and it has not been established that such amount
is anything other than income to you. Accordingly,
taxable income is increased $411,086.00 for the taxable
year ended 9-30-88.
On May 3, 1993, respondent filed with the Court an answer
(answer) to the petition that DCI had filed with the Court, in
which respondent alleged, inter alia, (1) that respondent mis-
characterized the adjustment in the notice to DCI's taxable
income as an adjustment to its gross income, rather than as a
disallowance of a claimed deduction for contract services in the
amount of $411,086 and (2) that DCI is not entitled to that
deduction because it constitutes a dividend or an attempted
assignment of income to the Diamonds.
OPINION
The District Court awarded the proceeds of the Farmers
lawsuit15 to the plaintiffs (viz., DCI and the Diamonds) without
15 The components of the proceeds of the Farmers lawsuit were:
(1) Lost profits damages of $1,497,016, (2) indemnity damages of
$63,159, (3) punitive damages of $290,715, (4) attorneys' fees
and costs of $226,212, and (5) interest of $177,881. Despite the
District Court's awarding indemnity damages of $63,159 to all the
plaintiffs (viz., DCI and the Diamonds), DCI does not contend
that any portion of those indemnity damages is allocable to the
Diamonds and thus not includible in its income for the year at
issue. In contrast, although a portion of the interest component
of the proceeds of the Farmers lawsuit was awarded with respect
to indemnity damages, neither petitioner nor respondent contends
that that portion of such interest component is not at issue. We
conclude that the indemnity damages component of the proceeds of
the Farmers lawsuit is not at issue in this case, but that all of
the interest component of such proceeds is at issue. Accord-
ingly, the amount of the proceeds of the Farmers lawsuit that
remains at issue is $2,191,824. Hereinafter, any reference to
(continued...)
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